Slipping transmission volume, margin woes to continue for Gail

Public sector Gail's results for the quarter to September is a reflection of the woes faced by the domestic natural gas transmission industry.

First, the dwindling availability of natural gas lowered the company's transmission volumes, and, secondly, the changes in tariff regulations forced it to de-recognise a part of its revenue.

Besides , being a state-run company, its subsidy sharing continued to add to the burden on its profitability. Although the company continues to invest in expanding its pipeline network, an improvement in availability of natural gas and stability in tariff regime will be key to better financials as well as performance on the bourses.

Gail's transmission volumes dropped nearly 11 per cent to 105.6 million units per day from 118.6 million units in the last September quarter.

This was also 3.8 per cent lower compared to the preceding June quarter.

Still, revenues from the natural gas transmission business were at par with the year-ago period, while profits improved 8.7 per cent to Rs 604.9 crore owing to better margins.

The natural gas trading business was also hit as volumes dropped 3.5 per cent to 80.7 million units daily. With a drop in profit margins , the segment's profits fell 14.6 per cent against a year ago. The LPG transmission business took a major hit when the regulator, Petroleum and Natural Gas Regulatory Board (PNGRB), revised tariffs relating to the company's LPG pipeline, which forced it write off Rs 123 crore of revenues.

As a result, the segment posted a loss of Rs 48.9 crore, while it posted a profit of Rs 72.2 crore a year ago.

The company also wrote off a provisional Rs 785.7 crore towards LPG subsidy, which was 38.6 per cent higher against a year ago. GAIL's petrochemical business also underperformed with a flattish performance at the profitability level.

As for the positives, the company's other income more than doubled to Rs 236.8 crore thanks to a 43 per cent jump in its cash balance to Rs 1,335 crore.

However, this is likely to be temporary as GAIL is in the midst of a heavy investment phase and its cash balances will soon get utilised. Its borrowings at end of September too rose 35.8 per cent from a year ago and the interest cost on these funds will start reflecting once the projects get commissioned.

It will take the commissioning of Petronet LNG's Kochi terminal and the revival of Gail's Dabhol terminal to address the industry's woes relating to falling natural gas availability.

On the other hand, PNGRB and city gas firm - Indraprastha Gas are locked in a legal tussle in the Supreme Court over tariffs. This means the sector's problems will continue for a while.